Period

1Q15

Actual vs. Expectations

1Q15 results came in below expectations with net profit of RM8.6m only making up 12% and 10% of our and consensus FY15 full-year estimates, respectively.

The main reason for the disappointment is the weakerthan- expected vessel utilisation as Shell looks to backload its HUC contract work orders to later years and weaker overall OSV market.

Dividends

No dividends have been declared for the quarter.

Key Results

expected.

Highlights

1Q15 core net profit plunged 58.7% YoY to RM8.6m from RM20.9m due to lower vessel utilization (1Q15: 76% vs. 1Q14: 90%) resulting from lower work orders from the oil majors in view of the industry slowdown. As a result, group’s EBIT margin took a hit, sliding to 25.4% from 35.9% previously while top line dipped by 20.4% YoY.

On a QoQ basis, core net profit declined by 27.5% in 1Q15 also due to lower vessel utilization (1Q15: 75% vs 4Q14: 86%). Aside from weaker oil market affecting vessel utilization adversely, we believe seasonality also played a part in the QoQ decline as 1Q of the year is typically the monsoon season, thereby reducing activities in the OSV market.

Outlook

PERDANA has taken delivery of Emerald, a 300-pax accommodation barge in 4Q14. It has replaced enterprise, which is serving a multi-year contract running up to Feb 2016.

PERDANA is likely to be the least exposed OSV player to renegotiation of rates by Petronas as it is already providing relatively low rates compared to its peers (DCR of USD1.9/bhp vs. USD2.2-2.3/bhp by other OSV players) given that the contracts were won pre-rebound cycle (i.e. 2013).

However, its long-term charter contracts to DAYANG is at risk as Shell looks to slow down work orders for their HUC contract this year in lieu of weak oil prices. This will in turn increase the possibility of premature charter contract termination for the group.

No further vessel additions are expected in FY15. The group will be saving resources for incoming deliveries of two higher-end 500-pax work barges scheduled to take place in 1Q16 and 2Q16, respectively.

Funding for the 1st work barge, SK317, will be sourced from internal cash funding and debt.

Change to Forecasts

We cut our FY15/16 earnings forecasts by 31.3%/14.7% to RM51.2m/83.2m by lowering our AHTS/workbarge average utilization to 75.0%/72.9% in FY15 and 77.5%/80.0% in FY16 due to bleaker near-term OSV market outlook.

Previously we have assumed AHTS/workbarge utilization of 82.3%/94.3% in both FY15 and FY16 forecasts.

Rating

Maintain MARKET PERFORM

Valuation

TP maintained at RM1.55 based on DAYANG’s offer price under the MGO scenario.

However, in the event that the MGO failed to materialise in the next six months, our TP would be biased downwards as near-term earnings risks remain amidst oversupply in the lower specification OSV market.

Risks to Our Call

Weaker-than-expected utilisation rates of vessels on spot charter.

Unexpected supply shocks in the oil market.

Source: Kenanga Research - 22 May 2015